Aging Infrastructures: Changes in Insurance Underwriting

By Terri Guest, CIRMS, CMCA

It is no secret that the insurance industry, especially for common interest developments in California, is in crisis. After several years of wildfires and other natural disasters, carriers are not only charging higher premiums, but also revising eligibility requirements and giving greater scrutiny to insurance applications.

In previous years, questions regarding infrastructure items, such as electrical wiring, plumbing, and HVAC, have been answered by the board with homeowner responsibility, effectively calling out "not it!" to insurance underwriters. This answer is no longer accepted.

With respect to condominiums and townhomes, while electrical wiring, plumbing, and HVAC that serve a single unit are generally the maintenance responsibility of each individual owner, it is almost always included in the insurance responsibility for the association. While less common, the same can be true for roofs and exterior siding. Unit owners maintain, repair, and replace them; but the master insurance policy for the association covers the buildings, including those infrastructure items if they are suddenly damaged or destroyed by something such as a fire.

It makes sense, then, that insurance carriers want more information on what exactly they are providing insurance for and what inherent risks may be present within those infrastructure items.

Take, for example, Campos Verde Condominium Association in Modesto. Built in 1968, this 101-unit community has always been well cared for. The board of directors spends copious amounts of time following the recommendations of the reserve study to prevent deferred maintenance.

However, the board was quite surprised when they received a non-renewal notice from their insurance carrier in 2023. They did not have any large property losses and they are not in a wildfire risk zone. The reason for the non-renewal? Galvanized plumbing pipes and electrical panels that are on a "fire-risk" list. Dianne Cole, board president for Campos Verde, explains that their yearly insurance premium increased from $35,000 to $188,000 per year. Not only were they forced to pass a special assessment of over $1,500 per unit to pay for the drastic increase, but they also must replace the risky electrical panels and re-pipe the community. Additionally, the out-of-pocket expense to each owner just for the Zinsco electrical panel replacement is $800- $1,000. "Honestly, the outlook is bleak for seniors and families as they try to cope with a limited budget, multiple assessments, and rising costs," said Dianne.

To prepare for the questions that are coming – and if your community is over 25 years old, they are coming – start gathering information now. Communities built in the 1970s or prior should pay close attention to electrical panels, wiring, and plumbing as these are most likely to require replacement or updates. All communities should start collecting information, including permits, on all upgrades that have been completed either by the association or by individual homeowners. If the owners do not have records, permits can be pulled as public record requests. Inspections by qualified contractors may also answer some questions.

If you discover items that will need replacement, such as circuit breakers made by Zinsco or Stab Lok, begin obtaining proposals from qualified contractors. With so many communities being faced with required replacements at the same time, the wait for some materials has already passed the one-year mark. If you can show an insurance underwriter that you have a contract in place and are waiting on materials for project completion, they are more likely to find this acceptable.

While these projects will be a lot of work, the benefit will be worth it. Communities that can provide data and are proactive on replacements are more likely to receive favorable credits from underwriters and less likely to be non-renewed or have difficulty finding carriers to offer coverage. No one will have to scramble to find answers if the information is already prepared and available. Do I even have to mention that it will be safer for the membership?

If you are a manager or board member in a community over 25 years old, buckle-up. These next few years are going to be a wild ride when it comes to insurance.

LIST OF ITEMS CARRIERS ARE REQUIRING BE REPLACED (THIS LIST IS NOT EXHAUSTIVE):

•  Fuse boxes
•  Certain circuit breakers and electrical panels
•  Federal Pacific/Stab Lok
•  Zinsco
•  GTE Sylvania
•  ITE Pushmatic
•  Knob & tube wiring
•  Ragwire wiring
•  Aluminum wiring (mitigation required, not replacement)
•  Galvanized steel plumbing
  
  

Terri Guest, CIRMS, CMCA, is the Northern California senior sales & marketing representative for Berg Insurance Agency and can be reached at [email protected].